Recommended Games

"Professor Fama's groundbreaking work on asset pricing and markets inspired the founding of Dimensional, and his ongoing contributions have guided our investment approach for more than three decades." -Dimensional Fund Advisors

"These findings not only had a profound impact on subsequent research but also changed market practice," said the Royal Swedish Academy of Sciences in its press release. "The emergence of so-called index funds in stock markets all over the world is a prominent example."

However, Jack Bogle, the "father of index funds" was a bit surprised to hear that Fama would be associated with indexing.

"He's clearly a brilliant economist," Bogle told Business Insider in a phone call this week. "He's right some of the time."

"When he had a chance to start an index fund, he did not do it," said Bogle.

Rather, Fama was part of the team that started Dimensional Fund Advisors (DFA), a money-management firm that seeks superior returns by increasing exposure to sectors they consider to be undervalued.

"Traditionally, managers do one of two things: they focus on picking individual securities, the antithesis of diversification, or they hold many securities but mimic arbitrary benchmarks," writes DFA on its website. "Dimensional chooses a different path. It structures strategies based on academic research rather than on speculation or commercial indexes. Small cap strategies target smaller stocks more consistently. Value strategies target value returns with greater focus."

Investing in "arbitrary benchmarks" or "commercial indexes" is what Bogle pioneered as a college student at Princeton and has been offering at a low cost for nearly 40 years. And anyone with the smallest amount of experience in investing knows how rare it is to outperform the indexes, especially when you're paying high fees to managers who believe they can beat the market.